In a recent update, I used the phrase, “It’s always darkest before the dawn,” as I reasoned that the marijuana sector’s dreadful performance in 2021 was likely the prelude to a well-deserved rebound in 2022. And the news is still pretty dark.
Consider these recent news items from the industry’s leading media company, MJBizDaily.
Supply-chain crunch hits California marijuana companies
One eye-popping illustration: Las Vegas-based Hara Supply, one of the world’s largest pre-roll distributors, has seen container shipping costs from India jump from $3,000 before the pandemic to $25,000 today, a whopping 733% increase.
Outlook dim for US marijuana legalization in 2022, but banking reform alive
The federal marijuana reform landscape in 2022 is cloudy, with most national insiders doubting a comprehensive legalization bill will succeed just yet given the unfavorable political dynamics in Washington DC.
Analysts cut hundreds of millions from Tilray, Canopy, Aurora marijuana sales forecasts
Analysts have slashed hundreds of millions of dollars off their 2022 sales forecasts for three Canadian cannabis producers, reflecting an increasingly competitive landscape across the adult-use industry, falling overall prices and poor execution by some executive teams.
Tilray, Budweiser maker AB InBev end cannabis beverage partnership
The world’s leading brewer, AB InBev, and Canada’s leading cannabis producer by market share, Tilray, have ended their partnership, the New York-based cannabis company quietly acknowledged in a regulatory filing early Monday.
Yet there is good news!
If you step back and look at the big picture, you can easily find great reasons for optimism, including the fact that U.S. legal marijuana sales topped $37.4 billion in 2021, and that states that have legalized marijuana have collectively garnered more than $10.4 billion in cannabis tax revenue since the first legal sales started in 2014, with more than $3 billion reported in 2021 so far. Eventually, those folks in Washington are going to want a piece of that.
Also, as I’ve noted before, the leading companies in the industry continue to grow at a very good pace, through both acquisition and organic development, so I remain very optimistic about what our portfolio can do in 2022. (In 2021, for the record, we lost 12.0%, while the index lost 28.6%.)
But I am going to make a few adjustments to the portfolio today.
I’m going to sell our final piece of Canopy Growth (CGC), which has been in the portfolio since 2017—and which was once accompanied by five other Canadian cannabis stocks. The stock’s downtrend continues, and fundamentally, it looks like all the best action in the industry will be in the U.S. from here on. SELL
And I’m going to sell half our position in Innovative Industrial Properties (IIPR). The reason: we have been overweight in the stock, which was a terrific performer in 2020 and 2021, but it no longer deserves it, as the stock (which is expensive by many measures) has sliced through its 200-day moving average this week. We’ll hold the remaining half for now. SELL HALF
On the buy side, I’m going to average up in recent addition ScottsMiracle-Gro (SMG), which has been trending higher for five weeks now. I’ll add 50% to the portfolio’s position. BUY 50% MORE
And I’ll average up in recent addition Verano Holdings (VRNOF), which has also been trending up for more than a month as investors discover this fast-growing contender that only came public in April. BUY 50% MORE
As for the stocks we hold of the leading companies in the industry—Cresco Labs (CRLBF), Curaleaf (CURLF), Green Thumb (GTBIF), TerrAscend (TRSSF) and Trulieve (TCNNF)— all five remain solid holds, as there’s little doubt they will reward us when the sector’s trend turns up.
Patience.